Greek Telecom OTE Snaps Up 90 Percent of Armentel

ATHENS (Combined Sources)–Greece’s partly privatized state telecoms company OTE said on Tuesday it was acquiring 90 percent of Armenia’s Armentel for $142.5 million–part of its goal to expand abroad.

The Armenian Republic will retain the remaining 10 percent.

"The acquisition of a controlling interest in Armentel represents part of OTE’s strategy for the Black Sea region," board chairman Dimitris Papoulias said in a news release.

"We believe that this region offers outstanding opportunities for the application of OTE’s operating expertise to generate attractive investment returns."

With the largest capitalization on the Athens bourse–around $9.5 billion–OTE operates 5.5 million lines and has 23,800 employees.

Its new acquisition follows OTE’s recent acquisition of a 20 percent stake in Serbia’s Telecom Srbija. OTE has also been eyeing a 40 percent stake in Moldova Telecoms–bidding against a French-Danish consortium.

Completion of the Armentel purchase was expected by January. The European Bank for Reconstruction and Development has indicated readiness to take a stake in Armentel and make a loan to it next year.

"We are going to take it to our board–most likely in February–and then we would be looking to invest in equity and probably make a loan to the company," EBRD principal banker Andy Scott told Reuters.

He said the EBRD was still negotiating on the size of the stake in Armentel to be acquired from OTE and it could turn out to be around 10 percent.

Armentel will be licensed exclusively to provide a wide variety of fixed and mobile telecommunications services for a period of 15 years.

It will also be licensed to provide value-added services on a non-exclusive basis–OTE said.

The sale was expected to lead to a significant overhaul of the Armenian telecoms sector since the license calls for the installation of a certain number of digital lines–increased penetration and a formula to raise local tariffs and cut rates on international calls.

Armenia has 585,000 telephone lines currently in service–74 lines per Armentel employee.

The ratio is expected to reach around 150 by the year 2008–with digitalization rising to 47 percent from three percent currently. Armentel started to offer GSM mobile telephone service in 1997.

"Armentel’s revenues are projected at $60 million next year with an EBITDA margin of around 50 percent," OTE said.

Armentel does not charge for local calls now as it lacks the technology to meter them.

"From Armenia’s perspective the deal makes sense in that the license requires the installation of digital lines and expanded penetration–so they will get a better quality network and a lot of investment," Scott said.

Likewise–Greece’s Leventis investment holding company has agreed in principle to participate in Armentel and acquire up to 10 percent of OTE’s holding.

Reports have also indicated that minor stakes may also be sold to France Telecom. Armentel is expected to invest $300 million over 10 years from January 1998 when the sale will be completed–for the development of the Armenian telecommunications network–OTE’s statement said.

‘The acquisition of a controlling interest in Armentel represents a part of OTE’s strategy for the Black Sea region,’ OTE chairman Dimitris Papoulias said. ‘We believe that this region offers outstanding opportunities for the implementation of OTE’s operating expertise.’

OTE is also currently participating in a joint venture with Hughes Network Systems for the development of a $200 million telephone network in western Ukraine. It is also participating in the construction of a 550 kilometer submarine fiber optic cable in the Black Sea.

Merill Lynch International is the financial consultant in the deal.YEREVAN

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